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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2008 404 006612
BETWEEN 246 INVESTMENTS LIMITED
Plaintiff
AND SIMON EDWIN HERBERT
Defendant
Hearing:
26 March 2009
Appearances: M Ring QC and G S Macdonald for Plaintiff
M A Gilbert S C and A J Commons for Defendant
Judgment: 10 July 2009 at 2pm
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
As to Summary Judgment
This judgment was delivered by me on 10 July 2009 at 2pm
pursuant to Rule 11.5 of the
High Court Rules.
Registrar/Deputy Registrar
Date: ......................
246 INVESTMENTS LIMITED V HERBERT HC AK CIV 2008 404 006612 10 July 2009
[1] The plaintiff applied for summary judgment
against the defendant on liability
to the plaintiff for contravention of s 9 Fair Trading Act 1986 and on quantum in the
sum of $1,737,950.00
(or such other amount as may appear appropriate).
Additionally, the plaintiff sought costs on an indemnity or an increased basis.
[2] At the commencement of the hearing Mr Ring, for the plaintiff, advised the
Court that the plaintiff now sought summary judgment
only as to liability. Rule 12.3
High Court Rules permits the Court to give judgment on the issue of liability and to
direct a trial
on the issue of amount if the applicant satisfies the Court that the only
issue to be tried is as to the amount claimed.
Background
[3] The defendant ("Herbert") was the sole director and indirectly the sole
shareholder of Empire Properties Limited. Empire
Properties was the owner of the
commercial property at 246 Queen Street, Auckland. In 2005 Empire Properties
marketed the building
for sale through Bayleys Real Estate ("Bayleys"). Herbert
was actively involved.
[4] Oyster Property Group Limited ("Oyster")
is a property investor, with
experience in the syndication and management of commercial real estate. During
2005 Oyster first became
interested in and then entered a conditional agreement to
purchase the property. The purchaser being identified in the agreement
as "Oyster
and/or Nominee". Upon the satisfaction of the conditions, 246 Investments Limited,
("246") the plaintiff in this case,
was in November 2005 incorporated as a vehicle for
investors to acquire the property. 246 was then nominated as purchaser by Oyster.
[5] On 16 December 2005, 246 settled the purchase of the property for
$24,987,950.00.
[6] The New Zealand School of Travel
& Tourism Limited ("NZSTT") was a
major tenant of the building, accounting for some 20% of the rent roll. NZSTT was
under the control
of Murray and Pam Watson. On the first rental payment date after
246 became owner, 1 January 2006, NZSTT failed to pay any part of
the rent due. In
the following months NZSTT never paid full rent and was later in 2006 placed in
receivership leaving a rent shortfall
for the year of $382,260.75.
[7] A new company then stepped into the business of NZSTT. 246 entered into
new leases with the
new company.
The grievance of 246
[8] It transpires that NZSTT had been in financial difficulty through the year
leading
up to the agreement for sale and purchase. It is not possible in a summary
judgment context to determine the extent to which Herbert
and Empire Properties
were themselves made aware of NZSTT's difficulties but it is clear that at some
point of the following undisputed
developments Herbert and Empire Properties must
have well appreciated that there were significant financial developments.
Summary
of NZSTT's financial developments.
[9] I summarise financial developments involving NZSTT as disclosed by the
affidavit evidence.
· November 2004 NZSTT and Empire Properties (through Herbert) negotiate
new leases for existing premises and for additional
floor, for 10 years terms,
commencing 1 August 2005, with NZSTT to have a four-month rental holiday
and a loan of $800,000.00
on normal commercial terms (subsequently uplifted as
to $500,000.00 only). (There is a dispute in the affidavit evidence as
to whether
NZSTT expressly indicated that it was in any significant financial difficulty).
· 1 November 2004 28 February
2005 four-month rent free period for NZSTT.
· 1 March 2005 $2,722.70 out of $500,000.00 loan repaid from that date the
loan agreement requires monthly payments of interest and principal for eight
years. (No such repayments occur thereafter.)
· Mid. 2005 NZSTT unable to meet its commitments for rent and operating
expenses.
· Early August 2005 Empire
Properties (through Herbert) lends $17,699.41 to
the Watsons (the major shareholders of NZSTT) who lend the money to NZSTT,
which then pays its rent to Empire Properties.
· Early September 2005 Empire Properties (through Herbert) lends $79,512.34
to the Watsons which is again further advanced and paid to Empire Properties.
· Late October 2005 Empire Properties (through
Herbert) lends $40,000.00 to
the Watsons who re-advance and then pay it to Empire Properties on account of
rent.
· Early
December 2005 Empire Properties (through Herbert) agrees to lend to the
Watsons $200,000.00 plus an additional $40,000.00 (on
settlement of the sale of
246 Queen Street).
[10] Dates within that period with significance affecting the
Empire
Properties/246 sale were as follows:
(a) 25 August 2005 draft sale and purchase agreement between
Empire Properties and Oyster.
(b) 16 September 2005 conditional agreement concluded at
$25,325.000.00.
(c) 4 October 2005 purchase price amended $24,987,950.00.
(d) 18
November 2005 final condition satisfied.
(e) 16 December 2005 completion of sale and purchase.
[11] The
matters set out at [9] and [10] above are not in dispute. It is
commercially obvious that 246 would have wanted to
know that a tenant responsible
for 20% of the rent roll was strapped for cash and was, during the period in which
the property was
on the market, borrowing from the landlord money which then
enabled the tenant to pay either current rent or arrears of rent. In
itself, that did not
impose upon Empire Properties or Herbert a duty to volunteer its understanding of
the NZSTT position. In order
to hold Herbert accountable for the fact that 246 ended
up owning the property with the failing and default tenant, 246 invites the
Court to
find particular conduct of Herbert to have been in breach of s 9 Fair Trading Act
1986.
Misleading and deceptive conduct
[12] Section 9 Fair Trading Act provides:
No person shall, in trade, engage in conduct that is misleading or deceptive
or is likely to mislead or deceive.
[13] It was common ground between counsel that the inquiry into whether there
has
been a breach of s 9 is usually addressed in the three steps identified by
Tipping J (for the Court of Appeal) in AMP Finance NZ
Limited v Heaven (1998) 6
NZBLC 102,414 at p 102,420:
We consider that the question whether there was a breach by AMP of s9
should be addressed in three
steps. The first step, which focuses on the
conduct in question, is to ask whether that conduct was capable of being
misleading. The second step is to consider whether the Heavens were in fact
misled by the relevant conduct. This step
focuses on the effect of the
relevant conduct on the Heavens' minds. The third step requires
consideration of whether
it was, in all the circumstances, reasonable for the
Heavens to have been misled. This is where, as with the first step,
the
objective dimension comes in. It is not enough for the Heavens to show they
were misled if reasonable people
in their shoes would not have been misled.
[14] I note particularly the Court's distinction between the objective dimension of
the first and third steps, as against the second step which involves a subjective
assessment.
Summary judgment principles
[15]
The starting point for a plaintiff's summary judgment application is r 12.2
High Court Rules, which requires that the plaintiff
satisfy the Court that the
defendant has no defence to any cause of action in the statement of claim or to a
particular cause of
action.
[16] Before turning to some particular issues which arise in relation to this case, I
summarise the general principles
which I adopt in relation to the application:
(a) The onus is on the plaintiff seeking summary judgment to show
that there is no arguable defence. The Court must be left without
any real doubt or uncertainty
on the matter.
(b) The Court will not hesitate to decide questions of law where
appropriate.
(c) The Court will not attempt to resolve genuine conflicts of
evidence or to assess the credibility
of statements and affidavits.
(d) In determining whether there is a genuine and relevant conflict of
facts, the Court is entitled to examine and reject spurious defences
or plainly contrived factual conflicts.
It is not required to accept
uncritically every statement put before it, however equivocal,
imprecise, inconsistent with undisputed contemporary documents
or other statements, or inherently improbable.
(e) In weighing these matters, the Court will take a robust approach
and enter judgment even
where there may be differences on
certain factual matters if the lack of a tenable defence is plain on
the material before the Court.
(f) Once the Court is satisfied that there is no defence, the Court
retains a discretion to refuse summary judgment but does so in the
context of the general purpose
of the High Court Rules which
provide for the just, speedy and inexpensive determination of
proceedings.
[17] Unsurprisingly, counsel for the parties urged upon me approaches to the
summary judgment jurisdiction with
different emphases.
[18] For the defendant Mr Gilbert urged the Court to the view that the voluminous
nature of affidavits (and
exhibits) filed in support, in opposition point towards
fundamental disagreement on key factual issues. The case, he submitted, calls
for
careful consideration of all the relevant circumstances and cross-examination of the
witnesses.
[19] For the plaintiff, Mr
Ring's submissions developed a proposition that the
defendant had (wrongly) represented the full contract rent for NZSTT as a truly
sustainable rent. His submission was that an examination of the documentary
statements and of the oral statements which were indisputably
made leads in a
summary judgment context to the clear conclusion that the representations made
were as to sustainable rent and not simply as to contract rent. The plaintiff's case
was that
the defendant's conduct of making secret loans to the tenant while
negotiating a sale to the plaintiff was misleading or deceptive.
[20] Against that background, I turn to examine the evidence in order to determine
whether the plaintiff has established that
the defendant has no arguable defence.
Matters conceded
[21] The plaintiff concedes that the defendant has an arguable defence
as to the
amount of any liability. Accordingly, while the plaintiff's application initially was
for judgment both as to liability
and quantum, I am now considering only an
application for judgment as to liability.
[22] Mr Gilbert for the defendant concedes
that in terms of the Fair Trading Act
Mr Herbert was a person "in trade". Accordingly, the Court in relation to the present
application
is to ignore the defendant's allegation in his statement of defence that he
was not in trade for the purposes of the Fair Trading
Act.
Misrepresentations/Misleading or deceptive conduct
[23] The plaintiff's case begins with the proposition that the defendant
made
misrepresentations to the plaintiff (statement of claim at [14]) and that those
misrepresentations were misleading or deceptive,
or likely to mislead or deceive
(statement of claim at [16.2]).
[24] The plaintiff asserts a combination of written and oral
statements. It is
convenient to examine first the written statements. My references immediately
below are to the paragraph
numbers in the statement of claim and the particular
allegation.
· 14.1 "In September 2005, through Bayleys, Herbert gave Oyster
Bayleys'
Schedule which showed net income from the property as $2,279,112.62". (I will
refer to this document as "Bayleys'schedule
of tenancies").
· 14.2 "In September 2005, in the context and for the purpose of Oyster's due
diligence investigation,
Herbert caused Martelli McKegg Wells & Cormack to
give Tompkins Wake copies of applicable lease documents, including the Deeds
of Lease relating to NZSTT". (I will refer to these documents as "the set of
leases".)
· 14.3 "By letter dated 4 October
2005 from Empire Properties to Oyster and the
enclosed adjusted rent schedule, Herbert reasonably conveyed to Oyster/246 that:
14.3.1 The net income which a purchaser of the property from Empire
Properties was reasonably likely to receive
was $2,248,915.51:
14.3.2 Of this net income, $491,600.00 would come from NZSTT;
14.3.3 Based on this net income,
the capitalised value of the property at 9%
would be $24,987,950.00;
(I will refer to this set of documents as "the
adjusted schedule of tenancies".)
14.4 "By clause 26.1 of the agreement Herbert expressly or impliedly warranted to
Oyster/246
the accuracy of the matters and/or the facts in the adjusted rent
schedule". Clause 26.1 of the agreement reads:
The Vendor
does not warrant the accuracy of any matter or fact in this
agreement (other than the Tenancy Schedule) or in the advertisement
of sale
or any brochures, internet websites, or plan of the Property. The Purchaser
must verify the same to the Purchaser's
own satisfaction. The Purchaser
enters into this agreement in reliance solely upon the Purchaser's own
judgement
and not upon any warranty, representation or condition made by
or on behalf on the Vendor.
[25] In his submissions, Mr
Ring did not appear to advance a proposition that any
of these documents individually misled. His submission was developed thus:
It is not sufficient that what is said may be literally correct. The issue is
whether the whole conduct taken in context
including the absence of
appropriate qualification conveys a misleading impression (i.e. a half-
truth).
Bayleys'
schedule of tenancies
[26] In his submissions for the defendant, Mr Gilbert dealt separately and
collectively with the alleged misrepresentations.
[27] In relation to Bayleys' schedule of tenancies, his central submission was that
the document clearly identified rental income
as the "contract income". This was in
his submission a document about the rental payable under the contract and was not a
statement
about the financial performance (past or future) of tenants. The September
2005 document which is the subject of paragraph 14.1 in
the statement of claim set
out tenancy details including the lease expiry date, and provided the gross square
metre rental rate,
gross rental, net rent annual and relevant details as to OPEX and
water and rates recoveries. The deduction of budgeted OPEX after
water and rates
recoveries from the gross rental ($2,812,997.27) resulted in a "net income" of
$2,279,112.62. That September 2005
schedule followed the format of scheduled
information which had been previously presented by Bayleys and received by
Oyster. Mr Gilbert
placed Bayleys' schedule of tenancies in the context of those
earlier schedules and also the information supplied at the start of
the marketing
process. In particular, Mr Gilbert referred to:
(a) On the second page of Bayleys' marketing flyer
of April 2005
there is summarised information as to rental in both the narrative
and in a table,
with the reference in both passages being to a "total
contract rental" ($2,719,466.60).
(b)
The Information Memorandum dated June 2005 which Bayleys
supplied to Oyster contained both a narrative and an
early version
of Bayleys' schedule of tenancies the narrative referred to
"contract income"
before deducting budgeted OPEX after water
and rates recoveries and arriving at a total net income of
$2,249,763.00. The schedule (as does Bayleys' schedule of
tenancies referred to in paragraph 14.1
of the statement of claim)
contained detailed information relating to the leases and provided
the detail by which the quoted gross rent and net rent figures were
arrived at.
[28] Mr Winter (of Oyster
and 246) deposed that he received all three documents
(the flyer, the Information Memorandum, and Bayleys' schedule of tenancies).
[29] Read together, those documents do not state anything other than the contract
rentals. The fact that Bayleys' schedule of
tenancies, as the third document in
sequence, did not have attached to it a covering note expressly referring to "contract
rental"
does not make it misleading. In its format and detail, it was obviously
derived from the earlier schedules without any apparent intent
to change the
significance of the "contract rentals' to which it is referring.
[30] As noted above at [23], the plaintiff relies
upon cl 26.1 of the agreement as
providing an express or implied warranty to Oyster/246 as to the accuracy of the
matters and/or
the facts set out in the adjusted rent schedule. For his part, Mr Gilbert
acknowledged that there was an express warranty as to the
updated tenancy schedule
in terms of cl 26.1 of the agreement. But it is this schedule (which I refer to in this
judgment as "Bayleys'
schedule of tenancies") which I have dealt with above in the
context of the provision of the first version of the schedule and its
subsequent
updating. In the context of a fair trading claim, a misleading statement would be
misleading whether the subject of a
warranty or not. The key point is that I do not
find Bayleys' schedule of tenancies as a document in itself, beyond argument, to
be
misleading.
The set of leases
[31] The second particular of misrepresentation asserted by the plaintiff lay in the
fact
that on 16 September 2005 the defendant's solicitors provided Oyster's
solicitors for the purpose of due diligence investigation the applicable lease
documents, including the Deeds of Lease relating
to NZSTT.
[32] It is common ground that the documents provided were the relevant leases.
[33] The plaintiff however
points to the entire agreement clause (cl 1.4) which
each lease contained in these terms:
This document embodies the entire
understanding and the whole agreement
between the parties hereto relative to the subject matter hereof and all
previous negotiations representations warranties arrangements and
statements (if any) whether expressed or implied (including
any collateral
agreement or warranty) with reference to the subject matter hereof or the
intentions of any of
the parties hereto are merged herein and otherwise are
hereby excluded and cancelled.
[34] The submission for the
plaintiff is that this clause conveyed that there were
no other undisclosed arrangements or collateral agreements. Reference was
also
made to a 2 October 2005 letter from Empire Properties (Herbert) to Oyster (Winter)
which stated "the only incentive given to
NZSTT was a market rate loan and a rent
holiday of 4 months which we understand is in line with normal market leasing
terms."
[35]
For the defendant, Mr Gilbert in relation to the leases emphasised a
distinction between the leases themselves and the financial
standing of the tenants (in
a parallel way to the distinction Mr Gilbert drew between the rentals payable under
the contracts and
the financial performance of the tenants in relation to those rentals).
[36] Mr Gilbert noted that Empire Properties provided
Oyster with the documents
as the "current deeds of leases, renewals and extensions, held by the Vendor" under
cl 15.3 of the agreement.
The agreement (cl 15.0) was conditional upon the
purchaser being entirely satisfied as to the suitability of the property
for the
purchaser's intended use at the agreed purchase price following a due diligence
investigation. The provision of leases
was in that context. Tompkins Wake
presented a due diligence report in September 2005. The due diligence
report
contained a detailed review of each of the leases and observed in relation to all leases
(including the NZSTT leases) that
Oyster held no information on the financial
standing of the tenant. There is therefore a tenable basis for suggesting that the
solicitors
responsible for reviewing the leases did not take the provision of the leases
with the information they contained as to rentals as
any statement about a particular
tenant's financial ability. Mr Gilbert referred to the evidence of Mr Ratuki, the
solicitor at Tompkins
Wake who undertook the due diligence analysis, who provided
an affidavit in support of the summary judgment application. Mr Gilbert
highlighted
the concluding passage of Mr Ratuki's evidence in which Mr Ratuki said:
... I would have expected Oyster to
have already obtained a direct
confirmation (or otherwise) from Mr Herbert or the vendor's agent that there
were
no known solvency concerns in respect of any of the lessors.
[37] The defendant's provision of leases without any accompanying
information
as to financial standing or financial arrangements does not constitute beyond
argument a misrepresentation as to the
financial performance, past or future, of the
various lessees. On the evidence filed by the plaintiff itself, the solicitors who
undertook the due diligence for the plaintiff at least arguably took the lease
documents provided to be statements of the contractual
lease position and not to
contain information as to the financial standing of any lessee. The entire agreement
clause relied upon
by the plaintiff does not rule out the defendant's arguable defence
in this area the entire agreement clause is essentially a contractual
provision which
precludes the parties to the lease from seeking to incorporate as binding obligations
or aspects of the lease any discussion or arrangement beyond
the lease document
itself. It does not say that such arrangements or discussions have not taken place it
simply precludes them
from having a contractual operation which would affect the
lease.
[38] It is of some significance that the plaintiff, in support
of the submission that
the lease information was misleading, invited the Court to consider Herbert's
2 October 2005 statement that
the only incentive given to NZSTT was a market rate
loan and a rent holiday of four months "which we understand is in line with normal
market leasing terms". It is clear from the letter itself and from the correspondence
leading to it that the purchaser had been
working through an investigation of not
merely what the contract rentals were, but also where such rentals sat in relation to
the
market. The sentence preceding the sentence referred to by Mr Ring contains
Herbert's statement that the current NZSTT rent "represents
the market" with the
explanation then following that the market rate loan and four-month rent holiday
were also consistent with normal
market leasing terms. While it is also necessary to
consider these statements in the context of the entire conduct of the defendant,
taken
on their own or in conjunction with the lease documents they do not establish
misleading conduct to the exclusion of any arguable
defence.
The adjusted schedule of tenancies
[39] The third particular of misrepresentation asserted by the plaintiff arose out
of
a letter of 4 October 2005 from Empire Properties to Oyster, with an attached
adjusted rental schedule. For the plaintiff, Mr
Ring summarised the representation
which emerged from the adjusted schedule of tenancies as this:
A purchase price of $24,987,950
reflected the "value capitalised at 9%"
based on "expected cashflow" for the next 12 months, which included the
full
contract rent from NZSTT.
[40] Mr Gilbert, for the defendant, noted that the amendment to the rental
schedule had come about because
Oyster was not satisfied with the way in which
Empire Properties had been calculating net income. On 27 September 2005 Winter
had
raised some particular concerns as to the method of calculation. This had led to
Oyster being "unhappy with the price we have offered".
The rental schedule was
amended to deal with the calculation concerns raised by Oyster. The 9%
capitalisation of net
rental, which was what the parties had been using, was then
applied with the consequence (still using a 9% yield) that a $24,987,950
figure was
arrived at. This became the revised purchase price.
[41] The plaintiff's case in the adjusted schedule of tenancies
is that a
representation was being made that the "net income" figure in was the income which
the purchaser was likely to receive
from the property. Mr Ring placed some
emphasis upon the use of the words "expected cashflow" in the covering letter.
There
are two particular factors which make the plaintiff's argument in this regard
no more than arguable:
i) The
adjusted schedule of tenancies is a further iteration of the
earlier schedules, which I have discussed.
There was no
apparent intent to change the significance of the "contract
rentals"
which had been referred to in those schedules.
ii) The description of the words "expected cashflow" as referring
to all the income from the property is potentially misleading
the use of those words
in the covering letter is specifically in
relation to the signage lease. The evidence indicates that the
income from the signage lease depends on bookings from
time-to-time and not on a set annual
rental. It is variable as a
matter of contract. The covering letter was reviewing those
signage bookings and discussing
the expected cashflow from
that particular lease. While it might be arguable for the
plaintiff that those words somehow reflected on the cashflow
from set rentals also, in my view there is
a strong argument
that the words "expected cashflow" relate only to the signage
lease.
I do not find the adjusted schedule of tenancies (being a
document comprising the covering letter and the schedule
itself) as a document which is misleading in itself.
Suppression of information
[42] At paragraph 14.5
of the statement of claim the plaintiff particularised what
were said to be instances of information suppressed by the defendant.
Many of those
instances are contained above (at [9]) in my summary of NZSTT's financial
developments. In addition to those generally
documented instances, there are other
allegations in the affidavit evidence upon which the plaintiff relies including:
i) NZSTT had been suffering reduced income as a result of lower
student numbers;
ii) NZSTT had unsustainable fixed costs as a result of reduced
income and of capital expenditure on resources
and premises;
iii) around November 2004 NZSTT assumed additional rental
obligations to Empire
Properties in the form of new long-term
leases including for additional space;
iv) NZSTT
did not need additional space and could not afford
from its resources to pay for its existing space at existing
rentals;
v) in 2005 regulatory delay for NZSTT in obtaining a relevant
diploma caused a loss of eight months' revenue;
vi) in 2005 NZSTT had substantial liabilities to creditors
which it
could not meet;
vii) the Watsons at various points disclosed to Herbert their
inability to meet future rental payments without deferred
payment terms.
[43] Thus,
the areas said by the plaintiff to amount to suppressed information fall
into at least three categories. First there are those matters
of financial difficulty
which can be clearly demonstrated on the documents or the history, and I have
summarised those above (at
[9]). Secondly there may be matters of difficulty which
NZSTT was experiencing (as deposed to by Mr Watson) but which may have been
peculiarly within the knowledge of the Watsons. Thirdly there are those matters of
NZSTT difficulty which it is said the Watsons
conveyed to Herbert. Where there is
dispute on such factual matters both as to whether the Watsons conveyed such
difficulties or
whether the difficulties arose in the way Mr Watson alleges then
unless the defendant accepts that such discussions took place
they are very much
evidential matters which require testing at a hearing. In Herbert's affidavit, there is
repeated challenge to
Mr Watson's version of events. Herbert maintains that there
was no indication at all from NZSTT that they were not financially viable.
He
asserts that he would have been very reluctant to have renewed the NZSTT leases
and to provide them with advances if he had
any appreciation that NZSTT was not
financially viable. Mr Watson deposes that Herbert in late-2005 asked the Watsons
to portray
the building and their tenancy in a positive light to any prospective buyer
who might enquire. Herbert deposes that it is correct
that he said that it would be
helpful if Mr Watson could say good things about the property, but Herbert says that
it is entirely
incorrect to suggest that he asked that NZSTT's financial position be
presented in a positive light. Herbert says such a suggestion was never made and
that he would not ask Watson to do so.
Herbert says he recalls saying to Mr Watson
that he would not want him to say anything that was not true. These are significant
factual
issues in relation to the case and issues going to the credibility of witnesses.
There is a direct conflict between Herbert and Mr
Watson. Mrs Watson has not
given evidence. These three witnesses would all have to be seen and heard before a
Court could conclude
what was actually said between them.
[44] That leaves the evidence in relation to NZSTT's financial rearrangements
which I have
summarised at [9], in relation to which there does not appear to be
dispute. It is the plaintiff's case that the combination of those
events with what was
said in the rental schedules and other documents, taken together and in their context,
convey a misleading impression
through half-truth. Or has the defendant at least an
arguable case that the combination of information and silence did not amount
to a
misrepresentation?
[45] The plaintiff has not satisfied me that there is no arguable defence to the
proposition that a misrepresentation
(or misleading or deceptive conduct) occurred.
The very fact that the Court is asked to examine all the information together "in
its
context" suggests a danger in not allowing the defendant to have that full context
explored in evidence in the normal manner.
[46] For the foregoing reasons I conclude that the plaintiff has failed to show that
the defendant does not have an arguable
defence in relation to the first step in the
AMP Finance NZ Limited v Heaven analysis, namely whether the conduct was
capable of
being misleading.
The second and third steps under s 9 Fair Trading Act 1986
[47] It becomes strictly unnecessary for me
to consider the second and third steps
under the AMP Finance NZ Limited v Heaven analysis. As I have fully reviewed the
evidence
and considered detailed submissions on both steps, it is appropriate that I
indicate what would have been my view on those steps.
[48] The second step is to consider whether the plaintiff was in fact misled by the
relevant conduct. That step focuses on
the effect of the relevant conduct on the
operative mind or minds within the plaintiff. This second step involves a subjective
assessment.
[49] On this point Mr Gilbert made the following submission:
16. 246 has not offered any direct evidence on
this point. Mr Winter
does not say that he was misled by the Bayleys tenancy schedule, the
lease
documents or the revised schedule into believing that it "could
reasonably expect to receive as the initial net
income from the
property at least $2,248,915.51, including at least $491,600 from
NZSTT". Even
if such evidence had been given, it would be no
more than an assertion which Mr Herbert should be entitled to
challenge in cross-examination in the light of all the other relevant
circumstances.
[50] There
is substantial force in Mr Gilbert's submission. There is no clear
statement in Winter's affidavit as to particular conduct he says
misled him. It could
be said that he had verified the allegations in the statement of claim as being true and
correct and that one
of the allegations is that "246 actually and reasonably relied on
the representations" but that allegation does not even contain
an allegation that it was
Winter who relied on the representations. Questions such as "Who" and "In what
particular regard" are the
very sort of questions which the defendant would wish to
explore in cross-examination.
[51] The third step in AMP Finance
NZ Limited v Heaven requires consideration
of whether it was, in all the circumstances, reasonable for the plaintiff to have been
misled.
[52] Having regard to all the other issues which have arisen in reaching the third
step, I have a clear view that the issue of reasonableness in this case can be
determined
only at a full hearing.
[53] The plaintiff's case faces a further difficulty at summary judgment level in
the form of cl 26 of
the agreement which reads:
26. No Warranty
26.1 The Vendor does not warrant the accuracy of any matter or
fact in
this agreement (other than the Tenancy Schedule) or in the
advertisement of sale or any brochures,
Internet websites, or plan of
the Property. The Purchaser must verify the same to the Purchaser's
own
satisfaction. The Purchaser enters into this agreement in
reliance solely upon the Purchaser's own judgment and not
upon any
warranty, representation or condition made by or on behalf of the
Vendor.
[54] Given the
defendant's pleading and reliance upon cl 26.1, Mr Ring addressed
the issue directly in his submissions. He acknowledged on the authority
of David v
TFAC Limited [2009] NZCA 44 at [60]- [63] that the view that it is not possible to
contract out of the Fair Trading Act (in relation to consumer transactions) does not
have
the same force in the context of commercial transactions involving substantial
independently advised parties negotiating from positions
of equality. The Court of
Appeal in David recognised that a contract in the context of substantial commercial
transactions can be
expected to reflect the parties' wishes as to the allocation of risk
and it is difficult to see why the parties should not be permitted
to allocate risk
between them by contracting out of the Fair Trading Act.
[55] Similarly, the Court of Appeal in David recognised
the relevance of
mechanisms such as "entire agreement" clauses as enunciated by French J in
Kewside Pty Ltd v Warman International
Limited (1990) ATPR (Digest) 46-059
(FCA)at page 53,222:
A disclaimer or exclusion clause will affect liability for misleading or
deceptive conduct only
if it deprives the conduct of that quality or breaks the
causal connection between conduct and loss. Whether it has that effect
in a
given case is a question of evidence and not a question of law.
[56] Having reached that point on the authorities,
Mr Ring noted the Court of
Appeal's caveat that a disclaimer or similar clause may be overwhelmed by oral
assurances or other conduct.
Mr Ring submitted that the plaintiff's conduct in this
case was of such an overwhelming character.
[57] For the reasons stated
above, I do not accept Mr Ring's submission as to the
overwhelming character of the defendant's conduct. Even had I taken a different
view as to whether the conduct was unarguably misleading I would have viewed cl
26.1 as requiring a consideration in the context
of evidence fully tested.
[58] Mr Ring's fallback position in relation to cl 26.1 was to submit that cl 26.1
does not apply because,
as he put it, it is not a total disclaimer or other total
contracting out clause and, to the contrary, it specifically excludes "the
tenancy
schedule" from its ambit. For the reasons I have earlier stated, that in my view does
not assist the plaintiff's case the
tenancy schedule as attached to the agreement is
not beyond argument a misleading document. Nor was the adjusted rental schedule
which followed.
[59] The defendant relied not only on cl 26.1 of the agreement, but also invoked
cl 15 which provided for Oyster
to undertake due diligence. Had it been necessary to
decide the point, I would not have found that the presence of the due diligence
clause
cut across the plaintiff's entitlement to summary judgment if otherwise established.
I accept Mr Ring's submission, based
upon the judgment of Heath J in Best of Luck v
Diamond Bay Investments HC Auckland CIV-2007-404-002043, 16 October 2007
(especially
paragraphs [135]-[137]), that a representor cannot immunise himself or
herself from liability on the basis that the representee should
have found out the truth
during due diligence. At most the fact there was a due diligence process is relevant
to the consideration
of what was reasonably to be inferred from the lease documents
which were provided to the plaintiff (and which I have dealt with
above at
paragraph [31].)
Causation
[60] For similar reasons to those expressed above, I am of the view that the
causation
issues raised by the facts of this case also militate in favour of a full
hearing and against summary judgment. Significant
issues as to the plaintiff's
reliance upon the defendant's representations would arise at trial. Similarly, the
Court would need
to examine (as French J put it in the Kewside case) "the causal
connection between conduct and loss" in the light of cl 18.1 of the
agreement.
Separation of liability and quantum
[61] The plaintiff's late concession that it could not expect to obtain a summary
judgment as to quantum meant that the Court has been requested to examine the
issue of liability without that same Court determining
on the same body of evidence
quantum.
[62] Rule 12.3 High Court Rules permits the Court to give judgment on the issue
of liability
and to direct a trial on the issue of amount if the party applying for
summary judgment satisfies the Court that the only issue to
be tried is one about the
amount claimed. That said, the authors of McGechan on Procedure (HR12.3.01)
comment that there are very
few cases where the Court has in fact granted judgment
on liability only.
[63] The dearth of "liability only" judgments has
come about not by chance, but
by principled reasoning. That reasoning is exemplified in the judgment of
Eichelbaum J in Ghent
v Brinkman HC Wellington CP379/87, 11 September 1987.
That case involved a claim for breach of fiduciary duty and breach of a duty
of care.
At pages 12-13 Eichelbaum J said this:
Even had I taken a different view of the issues discussed so far, I would not
have felt able to
accede to the plaintiffs' application for judgment on liability.
This is not a case where there is any clear dichotomy between
issues
affecting liability on the one hand and damages on the other. The claims for
aggravated and exemplary damages
appear to open up virtually the whole
field of the conduct of the respective parties, necessarily leading to an
examination
of all aspects of the relationship between them. Likewise with
the question of the possible reduction of the plaintiffs'
damages, whether on
the basis dealt with in Day v Mead or (on the second cause of action) by way
of a plea of contributory
negligence on conventional grounds. Thus the
Court would perforce have to examine and pronounce upon the very issues
which by virtue of a summary judgment would have been presumed to have
been decided in favour of the plaintiffs.
Not only would that mean that the
summary judgment procedure would have conferred little advantage from
the point
of view of saving expense and time but it would put the Court in
the position where it might make findings which would not
readily be
reconciled with a holding that there was no tenable defence. For these
reasons therefore I would in
any event decline to enter summary judgment.
[64] This case, as with that before Eichelbaum J, is not one where there is a clear
dichotomy between issues affecting liability on the one hand and damages on the
other.
[65] For this reason also I would decline
to enter summary judgment.
Disposition
[66] The plaintiff's application for summary judgment (as amended) is declined.
[67]
I reserve costs. My present view is that costs should be fixed on a 2B basis
together with disbursements to be fixed by the Registrar,
and should be payable in
the cause. If counsel are agreed on that course they are to file a brief joint
memorandum.
_____________________________
Solicitors:
DLA Phillips Fox, Auckland
(Counsel: M Ring QC, Auckland)
Hornabrook Macdonald Lawyers, Auckland
(Counsel: M A Gilbert
SC Auckland)
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